ON the eve of the tabling of the National Budget for 2021 in the Parliament the risk of being downgraded yet again by various international credit rating agencies is looming large over Namibia.
According to an annual report published by Moody’s Investors Service, the credit ratings agency said the COVID-19 pandemic, an extremely high government wage bill, volatility in commodity prices, subdued growth in major trading partners, and prolonged tightening in external financing conditions, have weakened Namibia’s negative credit profile significantly.
However, Namibia will be able to achieve a stable rating if the fiscal authorities build on positive aspects such as using the country’s excellent transport and other infrastructure as a solid foundation on which to relaunch its growth trajectory and to diversify the economy even further.
Namibia aims to become a logistics hub in the South-West Africa region and major projects derived from this hub are likely to have a large impact on the economy. The economy’s ability to reach its potential growth hinges on the authorities successfully turning the port of Walvis Bay Port and its containerised port expansion into a logistics hub, incorporating a special economic zone, as well as improving value added in other high potential sectors, such as fisheries and renewable energy.
Namibia performed relatively strongly on the Worldwide Governance Indicators and compares favourably other countries. Namibia also performed well in Transparency International’s Corruption Perceptions Index for 2020, ranking 57th out of 180 countries which are all factors that could be utilised to build further confidence with major rating agencies.
However, Moody’s expects Namibia’s debt burden to rise to 74% of Gross Domestic Product (GDP) this year from 72% in 2020 and 56% in 2019.
The fiscal deficit is expected to fall to 8.3% of GDP this year following a sharp widening in the 2020 financial year to 9.6% of GDP.
“We expect that the government will resume the path of fiscal consolidation to return to a deficit of about 3% in the medium- to long-term and slow the upward debt trajectory.
Tax measures, both in terms of tax administration and tax rate changes, are expected to offset a fall in South African Customs Union revenue,” the report reads
Implementation of the government’s fiscal consolidation plans will prove difficult in a low growth environment, particularly as the government tries to cut the huge public sector wage bill.
In addition, very large gross borrowing requirements, given the sovereign’s continued reliance on short-term funding, point to significant liquidity risk.
Moody’s said in the report that it would likely change the outlook to stable if there were indications of growth strengthening in the medium-term.
Stronger growth would in turn help rebuild fiscal buffers and bolster foreign exchange reserves, which would enhance Namibia’s shock-absorption capacity.
The agency made it clear that the country’s credit rating could be downgraded if there were signs of a rise in liquidity risks as the country’s capacity to source financing for its very large funding needs at moderate costs is eroding fast.
The increasing likelihood of the country’s debt burden rising even higher and faster than the Moody’s projection will have a severe impact on the already negative rating of the country.